Tulare Regional Medical Center could reopen under the stewardship of Adventist Health as soon as October 15, after the Tulare Local Healthcare District’s board voted unanimously to approve a slate of contracts between Adventist and Tulare.
Their votes made it official: Adventist Health will be the district’s chosen partner to reopen the hospital. The board also voted to send a measure to the ballot that could potentially see Adventist leasing the hospital for up to 30 years.
If voters rejected the lease, Adventist would leave the premises and turn the hospital back over to the district; if voters approved it, Adventist would begin leasing the hospital’s property on January 1, 2019.
“After our struggles to reopen, Adventist Health is a godsend, and an answer to so many community prayers,” board chairman Kevin Northcraft said. “In 10 years, when we look back on 2018, I am confident we will be very happy that we made the right choice. Adventist Health will provide caring and quality hospital facilities for decades to come.”
Dennis Mederos, a member of the ad-hoc committee created by the board to examine the slate of contracts, said that he was satisfied with Adventist and the contracts provided to the district.
“You are dealing with — in my opinion — an entity that has a proven track record of hospital administration, and the ability to run a first class healthcare system, and knows what they’re doing,” he said.
The Road to Reopening
Until the hospital reopens, day-to-day operations will remain under the management of Wipfli, the hospital’s interim management partner. Once it reopens, Adventist will take over the day-to-day operations under an interim management agreement.
Adventist will also make available to the district a $10m line of credit for use in refurbishing the hospital, replenishing supplies, and readying the hospital for reopening. That line will close once the hospital reopens.
The US Bankruptcy Court will still need to approve the slate of agreements in a Thursday morning hearing, where an agreement to make up to $1m available will be up for approval as well. Later in the week, the court will be asked to approve the remainder of the line of credit.
The district could have access to the first million by as soon as Friday, according to Todd Wynkoop, an attorney for the district. The rest could be accessible as soon as Wednesday, August 8, he added.
Adventist’s officials have already been working in concert with the Wipfli team, said Randy Dodd, Adventist’s Vice President of Business Development.
Dodd has himself been at the hospital on a full-time basis as the interim executive for Adventist Health Tulare, a new company created by Adventist Health to manage and eventually lease the hospital.
He’s also looking to hire staff. Dodd gave glowing praise to the staff that have worked to get the hospital ready for a new manager, but said that approximately 120 positions would need to be filled.
They’d work to see that existing staff would be able to work with Adventist, he said.
“The staff that’s there — the community owes them a debt of gratitude for the work that they’ve done in preserving this facility and the condition it’s in. Our job coming in was made easier for the work that they did,” Dodd said, “so we certainly value their dedication, their experience, their commitment to what’s going on here, and we want to give them every opportunity to come work with a great organization like Adventist Health as well.”
Projects to bring the hospital up to code for inspections by regulators will continue, many of which have been approved by the board at prior meetings.
“We’re confident that we’ve got enough time to get what we see done in the timeframe that we have,” he said.
Dodd added that the staff currently at the hospital have kept a good relationship with state regulators; and, given the timing, the state has made working with Tulare a priority.
Interim Management Period
When the hospital reopens — which could be as soon as October 15 or as late as October 28 — Adventist Health take over day-to-day management of the hospital and provide their own “C-suite” and Vice-Presidents to lead the hospital.
The Interim Management Services Agreement, the contract which governs Adventist’s management of the hospital until voters approve a lease, states that Adventist would separate the financials of the district’s old operation and the new Adventist Health operation.
New bank accounts would be required, and Adventist would act as “attorney-in-fact” for the district’s billing and collections. Adventist would take over billing, collections, and payment of all expenses to keep Adventist Health Tulare running; the company would also take on billing and collections for the hospital’s prior accounts receivable.
Payables relating to operations prior to the hospital’s reopening and any receivables from before its reopening would be debited from and deposited to the hospital’s old bank accounts.
As reimbursement for its services, the non-profit would retain “any and all net income of the Hospital earned during the term of [the] Agreement” with a set maximum fee — which was not specified in the contract. Adventist would also take responsibility for any losses.
Under the contract, any disputes between Adventist and the district would be required to enter arbitration, instead of head to court.
By law, voters must approve Adventist’s potential lease of the hospital. Adventist would lease the facility for 30 years, though the district would retain ownership of the actual property.
The 30 years would be split into multiple terms. The first term would span 66 months, with a 6 month “fixturization” period in which rent would be entirely free, the next four terms would span 5 years, and the last term would span 54 months.
With at least 270 days’ notice before the end of each term, Adventist could potentially exit the lease agreement.
Rent would be based off of a fair market value lease rate — required by law — which is currently in the process of being determined by Deloitte, a consulting company.
The first year of lease payments would be offset against the $10m loan. At that point, 50% of the lease payments would be offset — the other half headed to the district — until the loan is completely repaid.
Notably, in the version of the lease presented to the board, the lease would only cover the hospital and its adjacent ancillary spaces. Earlier drafts included other properties, such as the Evolutions Women’s Pavilion; those would be handled under separate leases now.
“[The lease] does not include any of the outpatient, off-campus facilities, such as Evolutions, Mineral King, and Earlimart,” Wynkoop said. “We agree based on the conversations I’ve had in the past that Adventist is interested in these other properties, and the board is interested in finding tenants; we agreed that Adventist would get a letter of intent to cover those properties under separate leases with shorter terms.”
The lease would require that Adventist keep acute care services at the hospital, and that the services provided are in compliance with all applicable laws and regulations — otherwise, Adventist would be in default, potentially giving the district the opportunity to take back the hospital.
In addition to Adventist’s right to exit the agreement before the end of each term, it also has the right to exit the agreement if the hospital does not finish the stalled tower project within 10 years of the lease’s starting date.
It’s unclear how the hospital’s stalled tower construction project would be finished, but Adventist representatives stated early in the selection process that they felt a bond would be likely.
If a bond didn’t pass, other funding options could be explored, according to Robert Beehler, Adventist Health’s Vice President of Market Development, Mergers and Acquisitions.
“I think the intention would be to get the organization open and to rebuild the trust with the community — if the community had enough confidence in the work we’re doing, we would like to see the district fund the tower with a bond,” Beehler said at the board’s June 27 meeting. “We would hold the option open of seeking other financing if it absolutely came to that.”
Adventist would also have the right to potentially purchase the hospital during its term, if the district’s bonds were either paid off or the purchase price would exceed the amount of bond debt the district was in.
Voters would need to approve that purchase.
$10m Line of Credit
Multiple properties would serve as collateral for Adventist’s loan to the district:
- Evolutions, at 1425 E. Prosperity,
- 591 E. Merrit,
- 935-945 N. Gem St,
- 979 N. Gem St,
- 874, 890, 922 N. Cherry St,
- 793, 795, 799 N. Cherry St,
- 1050 N. Cherry St
Adventist would accept a secondary role on Evolutions, subordinate to the existing controversial Deed of Trust that the district’s former management partner, Healthcare Conglomerate Associates, holds on the building and adjacent lot.
If voters approve Adventist’s lease of the hospital, it would purchase specified assets from the district at fair market value, as determined by Deloitte.
The value of those assets would be deducted from the line of credit.
If voters rejected Adventist’s lease, the line of credit would become payable within five years.
Role of the Board, and District, Post-Lease
The district would continue to control various properties in the city and the Evolutions building, and continue to exist as an entity independent from Adventist once the hospital is leased.
While the district would own the hospital grounds, the district’s board would not have input in the operations of an Adventist-leased Tulare Regional Medical Center beyond the lease requirements.
The district’s board would be able to begin or support other projects that would promote health care inside of its boundaries, as long as those projects are not in competition with Adventist’s work in Tulare, according to the lease.
That could include purchasing ambulances for use inside the boundaries of the district, or promoting cancer or diabetes awareness — three examples given during the meeting. However, during the immediate future, the district’s revenue streams would likely be tied up in repaying the district’s debt and its bonds.
“Our mission is to provide healthcare to the district — whether we operate the hospital as a district, or we lease the hospital; to, as you say, a good organization, our mission is being fulfilled,” Avila said.
“So, I think people need to understand it’s not our mission to run a hospital. It’s our mission to provide this top quality healthcare to the people in this district; and just because we’re leasing it, and not operating it, doesn’t mean we’re going away or we don’t fulfill our mission.
“We are fulfilling our mission,” Avila said.